Factors of production are the resources or inputs used by human beings to produce goods or service for the aim of making profit. They are considered building blocks of economy. These factors of production aren't the same as raw materials. This because they are used in production of goods or service but don't usually become part of the product and aren't transformed by the production process. However, some produced goods known as capital goods such as tools and machines like computers and vehicles can be factors of production.
Factors of production
The four factors of production which are land, labour, capital and entrepreneurship.
1. Land
Land includes anything that comes from land (natural resources) which are used in production of goods and service. These natural resources can be renewable such as water, forest, wind energy, and solar energy or nonrenewable such as gold, oil and natural gas. Land itself can also be utilized for various purposes, such as agriculture, residential housing, or commercial buildings.
2. Labour
Labour is an effort that human contribute in production of goods or service. The value of labor depends on human capital, which is determined by the individual’s skills, training, education, and productivity. Note that work performed by an individual purely for his/her personal interest is not considered to be labor in an economic context.
3. Capital
Capital are produced goods such as tools, machines and buildings that are used by human to produce goods and service. They are also known as capital goods. Example of capital goods are hummer, vehicle, and computer. However, in society most of people think capital is all about money but in economic context money is not considered a capital but a something that facilitates acquisition of capital ie. tools and machines. Capital varies based on the worker and the type of work being done. For example a web developers may use computer to provide apps and websites production service. A musician may use guitar, microphone, piano and other music instruments to provide music production services.
4. Entrepreneurship
Entrepreneurship is the process of starting and developing a business, with the aim of delivering something new or improved to the market. Entrepreneurs combines the three factors of economy (land, labour and capital) and use different innovative ideas to produce new products and service to earn profit. They contribute much in economic growth helping to build some of the largest firms in the world as well as some of the small businesses in your neighborhood.
References
- Factors of Production - The Economic Lowdown Podcast Series & Transcript
- Factors of Production - CFI
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